The Prescription Drug Locomotive and the U.S Big Slice of the Global Rx Pie

by Clive Riddle, November 20, 2015

With prescription drug spending now having taken over the locomotive of the healthcare cost train, it behooves stakeholders to better get to know what lies on the tracks ahead. The IMS Institute for Healthcare Informatics has just released the 47-page report: Global Medicines Use in 2020:  Outlook and Implications in which they examine the global use of medicines and spending levels in 2020, including small and large molecules, brands and generics, those dispensed in retail pharmaceutics as well as those used in hospital or clinic settings.

IMS tells us the report “found that total global spend for pharmaceuticals will increase by $349 billion on a constant-dollar basis, compared with $182 billion during the past five years. Spending is measured at the ex-manufacturer level before adjusting for rebates, discounts, taxes and other adjustments that affect net sales received by manufacturers. The impact of these factors is estimated to reduce growth by $90 billion, or approximately 25 percent of the growth forecast through 2020.”

The report also tells as that “developed markets will contribute 63% of the spending, led by the U.S.  Original brands will represent 52% of spending and 85% of global spending will be for medicines to treat non-communicable diseases.” 

A pie chart exhibit in the report is telling in how large the U.S. slice of the medicine spending pie is projected for 2020 – 41% of global spending, with the next closest slice being the entire European Union at 13%.

Report findings on spending impacting U.S. costs include:

  • Brand spending in developed markets will rise by $298 billion as new products are launched and as price increases are applied in the U.S., most of which will be offset by off-invoice discounts and rebates. 
  • Patent expiries are expected to result in $178 billion in reduced spending on branded products, including $41 billion in savings on biologics as biosimilars become more widely adopted. 
  • Many of the newest treatments are specialty medicines used to address chronic, rare or genetic diseases and yielding significant clinical value. By 2020, global spending on these medicines is expected to reach 28 percent of the total.
  • More than 90 percent of U.S. medicines will be dispensed as generics by 2020. Generic medicines will continue to provide the vast majority of the prescription drug usage in the U.S., rising from 88 percent to 91-92 percent of all prescriptions dispensed by 2020. 
  • Spending on medicines in the U.S. will reach $560-590 billion, a 34 percent increase in spending over 2015 on an invoice price basis. 
  • While invoice price growth – which does not reflect discounts and rebates received by payers – is expected to continue at historic levels during the next five years, net price trends for protected brands will remain constrained by payers and competition, resulting in 5-7 percent annual price increases. 

Some international findings include:

  • Global medicine use in 2020 will reach 4.5 trillion doses, up 24 percent from 2015.
  • Most of the global increase in use of medicines over the next five years will take place in pharmerging markets, with India, China, Brazil and Indonesia representing nearly half of that growth.
  • Generics, non-original branded and over the counter (OTC) products will account for 88 percent of total medicine use in pharmerging markets by 2020, and provide the greatest contribution to increased access to medicines in those countries. 
  • Newer specialty medicines, which typically have low adoption rates in pharmerging countries lacking the necessary healthcare infrastructure, will represent less than one percent of the total volume in those markets.
  • Global spending will grow by 29-32 percent through 2020, compared with an increase of 35 percent in the prior five years. 
  • Spending levels will be driven by branded drugs primarily in developed markets, along with the greater use of generics in pharmerging markets—offset by the impact of patent expiries. 

The Impact of Inaccurate Patient Data 

By Claire Thayer, November 18, 2015

Matching of patient records to the correct person is of utmost importance in terms of patient safety and quality of care, yet gets complicated when organizations share their records electronically either with different EHR platforms or across multiple healthcare systems as well as when patients use different settings to receive their care.   The Patient Identification and Matching Initiative, sponsored by the Office of the National Coordinator for Health Information Technology (ONC), focused on identifying incremental steps to help ensure the accuracy of every patient’s identity. A few of the key findings outlined in the ONC’s  Patient Identification and Matching Final Report report suggest:

  • Standardized patient identifying attributes should be required in the relevant exchange transactions.
  • Any changes to patient data attributes in exchange transactions should be coordinated with organizations working on parallel efforts to standardize healthcare transactions.
  • Certification criteria should be introduced that require certified EHR technology (CEHRT) to capture the data attributes that would be required in the standardized patient identifying attributes.
  • Certification criteria that requires CEHRT that performs patient matching to demonstrate the ability to generate and provide to end users reports that detail potential duplicate patient records should be considered.

Also referenced in the extensive 85+ page ONC report: One-fifth of CIOs surveyed by College of Healthcare Information Management Executives (CHIME) indicated that at least one patient in the last year suffered an adverse event, due to mis-matched records. While exact cost impact is hard to gauge, one health system reported that poor patient matching is associated with an operational cost of fixing a duplicate record at $60. The overall impact of inaccurate patient data was the focus of a recent MCOL infographoid, highlighted below:


MCOL’s weekly infoGraphoid is a benefit for MCOL Basic members and released each Wednesday as part of the MCOL Daily Factoid e-newsletter distribution service – find out more here.


Someone Must Be On Drugs

By Kim Bellard, November 11, 2015

As is probably true for many of you, I'm busy looking at health plan open enrollment options for 2016. The past few years I've been guilty of just sticking with the same plan, so it has been too long since I've had to shop. Plus, I'm helping my mother pick her Medicare options for next year. All in all, I'm awash with health plan options.

I've got different levels of HMO, POS, and PPO options, from multiple carriers. My mother has many choices of Medicare Supplements, with Part D options, as well as Medicare Advantage options (both HMO and PPO), each from multiple health insurers.

It's not that there aren't plenty of options. It's just that, well, the options are so damn confusing.

Austin Frakt recently wrote in The New York Times about this problem. He cited a few studies specifically on point about health insurance, such as:

  • One study found that 71% of consumers couldn't identify basic cost-sharing features;
  • Less than a third of consumers in another study could correctly answer questions about their current coverage;
  • Researchers found that consumers tended to choose plans labeled "gold" -- even when the researchers switched the "gold" and "bronze" designations, keeping all other plan details the same.

Many consumers tend to stick with their existing choice even when better options are available, simply because switching or even shopping is perceived as too complicated.

I'm most frustrated with prescription drug coverage. Not that long ago, the only variables were the copays for generic versus brand drugs. Now there are often five or six different tiers of coverage -- such as preferred generic, other generic, preferred brand, other brand, and "specialty" -- with different copays or coinsurance at each tier, each of which can also vary by retail versus mail order, and for "preferred pharmacies." 

Moreover, the health plan's formulary, which determines what tier a drug is in, can change at any time. Plus, as has been illustrated recently, the prices of any specific drug can change without notice, sometimes dramatically. If either of those happens to one of your drugs, say goodbye to your budget.

It's all enough to make your head spin.

The health plans would no doubt argue that their various approaches to prescription drug coverage are necessary in their efforts to control ever-rising costs for prescription drug costs. Well, they aren't working.

Prescription drug prices continue to soar, even for generic drugs. They have become a political issue, with the Senate now launching a bipartisan investigation into prescription drug pricing and the Presidential hopefuls from both parties being forced to take positions on how they would control them. For once, politicians are in sync with their constituents; the latest Kaiser Health Tracking Poll found that affordability of prescription drugs tops their priority list for Congress and the President.

I've long thought that the pharmaceutical industry was ahead of the rest of the health care industry. They were doing electronic submission of claims over forty years ago. They pushed for direct-to-consumer advertising in the late 1980's, and quickly jumped on that bandwagon. While providers only grudgingly adopted EHRs, they quickly moved to e-prescribing.  Other health providers had to move away from discounted charges twenty years ago, whereas drug companies still mostly use that approach and are only starting to tip-toe into more "value-based" approaches, as with the recent Harvard Pilgrim-Amgen deal.

And the backroom rebate deals between drug manufacturers and payors put a lie to any claim that at least drug pricing is transparent.

It's not only prescription drug coverage that is increasingly complicated, what with narrow networks, gatekeepers, different copays for different types of medical services, bundled pricing, or numerous other gimmicks used in health plan designs.  The collateral damage in the ongoing payor-provider arms race is consumer understanding. 

Making things more complicated for consumers is not the answer.

In typical fashion, the health care industry has tried to address the confusion by creating a new industry that doesn't actually solve the problem but does manage to introduce new costs. Many enrollment sites --the Medicare plan finder, public exchanges, private exchanges, broker sites like ehealth, or health insurer sites -- offer tools that purport to estimate your costs under your various health plan options. Yet consumers still don't understand their options.

We keep treating health care as a multi-party arrangement between providers/health plans/employers/government/consumers, which is why everything ends up so complicated. Drug company rebates or medical device manufacturers' payments to providers are prime examples of the kind of insider trading that goes on. It's usually the consumers that come last. And that's the problem.

I think back to 1990's cell phone plans. Consumers never knew what their next bill would bring, between peak/non-peak minutes and the infamous roaming charges. No one liked it, no one understood it, and for several years no one did anything about it. Then AT&T came out with a flat rate plan that essentially said, "we'll worry about all those for you," and soon all carriers had to adopt a version of it.

I keep hoping for that kind of breakthrough with health insurance.

This post is an abridged version of the posting in Kim Bellard’s blogsite. Click here to read the full posting


Juggling Risk

By Cathy Eddy, Health Plan Alliance, November 4, 2015

The insurance industry is based on managing risk. Health insurance has managed medical costs for years. With the Affordable Care Act, the federal government has set a minimum target for the medical loss ratio at 80-85%.

But managing risk has become so much more challenging for the health care industry than just managing medical claims. We are now juggling lots of types of risk at the same time. We are hoping not to drop the ball on any of these or it could mean losing millions of dollars or even going out of business. The number of Co-ops that have closed this year is a clear indication of just how hard it is to do business in the public exchanges.

Here are the types of risk that health plans are now simultaneously juggling:

  • Risk adjustment
  • ORSA
  • Risk Corridors
  • Value-based reimbursement
  • Bundled payments
  • Upside risk and maybe downside risk
  • Cyber Risk
  • Business interruption and disaster recovery
  • Key employee risk

And the Alliance health plans are right in the middle of these challenges. As we are planning our programming for 2016, we are looking at ways to share how plans are trying to align with providers to be successful.

During 2016, the Alliance will expand its membership to include health systems that our members identify. We will discuss their strategic priorities, build informational profiles on these systems and develop our meeting agendas to focus on the areas where our health plans intersect with the providers. We hope that health systems will take advantage of the content at these meetings:

  • April 13-14  Clinical Integration and Payer/Provider Partnerships
  • June 7:  Board and Governance Strategic Issues and Performance
  • June 8-9: Health System/Health Plan Strategic Alignment
  • Sept 28-30 Care Management/Care Coordination
  • Oct 19-20: Managing Risk Reimbursement Arrangements
  • Dec 6-8 Managing Populations with Data

We will also be collaborating with other organizations that are working with providers to serve as a resource for content. Many providers have indicated an interest in taking on more risk and either starting up a health plan or working with partners to offer a private label plan in their market. We would like to leverage the Alliance’s 20 years of experience in the provider-sponsored health plan space to help those providers that are entering or reentering the health plan business.

As the rest of the insurance industry consolidates into a few very large players, we’d like to see integrated delivery system with health plans and those independent health plans working closely with providers be able to offer a viable option to the other types of health insurers.

And to be successful, our plans and health systems will need to juggle all types of risk collaboratively.


A Definitive Study and Reference Resource on Healthcare Cost and Utilization

By Clive Riddle, October 30, 2015

The Health Care Cost Institute (HCCI) has just released its free 26-page 2014 Health Care Cost and Utilization Report, and 92-page Appendix, which provide a definitive examination of detailed U.S. health care cost and utilization component line items and demographics. Their study – as with other major cost studies released this year – put a lot of focus on increases in prescription drug prices.

They found the costs increased 3.4 percent in 2014, with overall utilization decreasing somewhat, while prices for all categories of services rose.  Average spending per person was $4,967, up $163, including out-of-pocket spending of $810 that grew 2.2%.

With prescription costs standing out, they note that “despite a nearly 16 percent decrease in use of brand prescriptions, spending on these prescriptions jumped by $45 per capita in 2014—an increase four times larger than in 2013. Much of this increase was due to use of high-priced Hepatitis C drugs Olysio, Sovaldi, and Harvoni, which became available starting in late 2013.”

Here’s some other key findings:

  • “In 2014, the largest decline in use (-2.7%) was for acute admissions, which fell by 1 admission per 1,000 individuals. The smallest decline in use (-0.9%) was for outpatient visits, which fell by 3 visits per 1,000 individuals.”
  • “The smallest average price increase was for professional services (3.1%), an increase of $3 per service. The largest average price increase was for acute inpatient admissions (4.6%), an increase of $831 per admission.”
  • “Spending out of pocket on acute inpatient admissions (–$1) and on brand (–$9) and generic (–$4) prescriptions decreased by $14 per capita in 2014 compared to the previous year, while spending out of pocket on outpatient ($16) and professional ($15) services increased by a total of $31 per capita in 2014.”
  • “Every year between 2010 and 2014, out-of-pocket spending was higher by women than by men. This difference grew every year, reaching $237 in 2014.”
  • “The difference in spending between the oldest and youngest age groups studied increased every year studied: from $6,281 in 2010 to $6,806 in 2014. In 2014, spending was $2,660 for children ages 0-18 and $9,466 for pre-Medicare adults, ages 55-64.”